Hard Times for REC Silicon

REC Silicon, which is a Norwegian company has turned an unlikely victim of a China USA trade war on solar products. REC was one of the leaders of the polysilicon industry with a leading marketshare in the sale of polysilicon, which is used to make solar cells. The company had seen a huge rise in its value with the growth of the solar industry in 2008 to 2010. However, the solar downturn in 2012 had forced the company into losses, as it was unable to compete with low cost Chinese players in the wafer to module segment. The company tried to save itself by building a 1 GW integrated wafer to panel fab in Singapore and closed its high cost operations in Europe. However, the relentless cost pressures from China forced the company to demerge its solar wafer, cell and module operations from the main company and sell it to major Chinese state owned company. REC only retained its polysilicon and silage operations, which were profitable and were the company had a technology advantage due to its long experience and FBR technology.

Now even this segment is facing major losses for the last one year. The reason is that the company’s factories are based in USA and they are facing anti-dumping duties from China. While the USA’s CVD and ADD on Chinese solar cells and panels are well known, China’s revenge duties on imports of USA’s polysilicon exports are not that well known. The reason is that they are only a couple of companies making polysilicon – Hemlock and REC. These companies have been hurt badly from the duties as China consumes almost 70% of the global polysilicon production. Without being able to compete in China, REC is running into heavy losses over the last one year. The company gave horrendous results in which it reported negative EBTIDA margins of 40%, as it had to write down both inventory and capital equipment. The Chinese duties are taking a huge chunk out of the company’s capital. Polysilicon prices have also fallen to new lows and that is putting additional pressure on the company’s bottom line. Its cost is around $16.5/kg, which is slightly higher than the Asian price of $15/kg. On top of that the heavy duties means that it is not being able to sell its production. The company is now going to shut down almost half of its plant, as it has to deal with a growing pile of finished inventory.

REC has already sacked numerous workers due to losses and low demand. I think another round may be in the offing, as it shuts down more units. GCL, OCI and Wacker have managed to keep on increasing production and market share in the last few years overtaking REC. SunEdison which is also a major poly maker does not face similar issues, as it is downstream integrated with wafer to module production under various JVs.

REC Silicon will also recognize an impairment of USD 151.5 million, due to anticipated lower future prices caused by the uncertainty from the solar trade war between the US and China and the impact of Moses Lake production curtailments and the oversupply in the polysilicon industry.

Due to ongoing negative effects from the trade war between the US and China, the company has been prevented from accessing the Chinese market during the fourth quarter, which has resulted in lower sales than previously anticipated. As a result, fourth quarter polysilicon sales volumes were 2,740 MT, compared to guidance of 4,855 MT, and finished goods inventory decreased by 131 MT, compared to guidance of 1,700 MT of inventory depletion. Additionally, average sales prices for solar grade polysilicon declined by 4% compared to the previous quarter.

Source –Yahoo